BOT opts for mild rate cut
The Bank of Thailand's Monetary Policy today surprised the market with the decision to cut the policy rate by only 25 basis points to 3.25 per cent, despite poorer-than-expected economic data.
"The floods resulted in a more adverse impact than expected by the MPC at the previous meeting. The MPC is of the opinion that the current accommodative monetary policy can provide further support to economic restoration and investment," said Paiboon Kittisrikangwan, secretary to the MPC and a central bank's assistant governor.
Five MPC members voted for the cut of 25 basis points while 2 members voted for the reduction of 50 basis points.
The market widely anticipated a cut of 50 basis points. Notably, this is the first cut in months. In the last meeting, the MPC decided to pause.
The MPC today revised up its estimated damage from floods from 1.1 per cent of gross domestic product (GDP) to 2.1 per cent. This will result in the GDP growth of only 1.8 per cent this year, down from previous estimate of 2.6 per cent.
The upward revision followed a sharp contraction in the manufacturing sector in October, aside from the global economic crisis. Consumption in the month also declined due to manufacturing suspension and disruptions in goods transportation.
October's Manufacturing Production Index slumped by 35.8 per cent year-on-year due to temporary shutdown of production due to the floods.
Hard-hit industries included the hard disk drive, automobile, integrated circuit and parts and electrical appliances industries, said Mathee Supapongse, senior director.
The manufacturing index of the automotive industry plunged the most, by 62 per cent on year; electronics by 52 per cent; and electrical appliances by 45 per cent.
October's exports also suffered a 0.1 per cent shrinkage on year, as global demand dropped in light of the euro crisis.
